Industry reels from double punch of rate hike, currency devaluation

Updated December 01, 2018

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Trade and industry leaders stress that the environment for doing business is becoming unfavourable. — AFP/File
Trade and industry leaders stress that the environment for doing business is becoming unfavourable. — AFP/File

KARACHI: Trade and industry on Friday expressed its reservations over rupee devaluation and the increase in interest rate to 10 per cent.

Talking to Dawn, Trade and industry leaders stressed that the environment for doing business is becoming unfavourable by the day. The general consensus was that the hike in interest rate and weakening of the rupee would send negative signals to both foreign and local investors.

Karachi Chamber of Commerce and Industry (KCCI) President Junaid Esmail Makda said, “Such abrupt devaluations in the past led to economic distress which lasted for several years. Currency devaluation would have negative economic implications in the long run,” he opined.

Exporters may be happy on rising dollar value and the country’s economic indicators would also display some improvement in exports but this increase can only be attributed to dollar value as the export volume remains the same, Mr Makda opined. He said Pakistan’s exports have fallen sharply to many destinations around the world because of rising cost of doing business.

“Rupee devaluation is making imports costlier while the exporters would also bear the brunt due to rise in cost of imported raw materials,” he noted.

On the 150 basis points increase in benchmark interest rate to 10pc, he said that it would discourage borrowings besides soaring cost of doing business which is already too high as compared to other countries.

“Tight monetary policy is already hampering industrial production, hurting exports, and increasing joblessness,” the KCCI chief said.

The upward revision in lending rate would translate in multiplying inflation and increasing the cost of production. The decision would neither help curtail fiscal deficit nor control inflation as it

had not served the purpose in the past rather it would create troubles for the investors, he added.

So many measures were taken to discourage the imports including the imposition of Regulatory Duty on many items but imports remained inelastic and a weaker rupee would not help it, he said.

He urged the federal government to stop further rupee devaluation and bring down the interest rate before it’s too late. Steps have to be taken to create an enabling business environment, he stressed.

President Site Association of Industry (SAI) Saleem Parekh said the industry was expecting 1pc rise in interest rates.

“There was no need for rupee devaluation under the current economic conditions,” he said. “Uncertainty over future rupee-dollar parity still looms thus causing anxiety among businessmen on how to satisfy foreign buyers and run industries smoothly,” the SAI president said.

Mr Parekh said the government must ensure consistency in its economic policies otherwise the results would be devastative for the economy.

He said rising cost of imported raw materials because of falling rupee does not provide full benefit to exports which usually rises owing to sinking rupee.

Meanwhile Chairman Karachi Wholesalers Grocers Association (KWGA) Anis Majeed anticipated another 5pc jump in the prices of imported pulses due to fresh loss in rupee value.

He said only Rs5-10 per kg price hike was passed to the buyers in previous devaluation in the last 50 days. However, some traders could not pass even 5pc due to dull demand of commodities and hovering tension among importers on further currency fluctuation, the KWGA chairman said.

“The State Bank usually comes out to rescue rupee after massive dollar rise in morning trading. As a result, rupee value finally settles in the evening with a fresh devaluation despite intervention from the central bank which is alarming for importers mainly,” he said, adding that the SBP should take rupee-dollar parity issue seriously.

Published in Dawn, December 1st, 2018